Introduction to Finance Assignment

Assignment Brief

Assignment Brief

As part of the formal assessment for the programme you are required to submit an Introduction to Finance assignment. Please refer to your Student Handbook for full details of the programme assessment scheme and general information on preparing and submitting assignments.

Learning Outcomes:

 After completing the module you should be able to:

1. Contrast the appropriateness of the different sources of finance available to a
2. Explain the implications of finance as a resource within a
3. Produce simple financial statements in accordance with accepted
4. Use financial information for decision making
5. Demonstrate a confident use of the financial terminology and conventions in communicating

Your assignment should include: a title page containing your student number, the module name, the submission deadline and a word count; the appendices if relevant; and a reference list in Arden University (AU) Harvard format. You should address all the elements of the assignment task listed below. Please note that tutors will use the assessment criteria set out below in assessing your work.

Maximum word count: 3000 words

Please note that exceeding the word count will result in a reduction in grade proportionate to the number of words used in excess of the permitted limit.

Assignment Task

Question 1

The marketing department of Redstone plc has put forward for consideration the following capital investment project, details of which are shown below.

The project being put forward has an initial investment requirement of £340,000, with inflows and outflows of £100,000 and £25,000 respectively each year for the next six years.

The investment required is not readily available in the form of working capital and therefore the company would require both equity and debt financing. The equity requirement would constitute half of the investment, with the remainder through debt financing. Equity investors require a 7% return and debt financers require 6% interest. There is also an associated risk premium of 1.5% which needs to be considered.

However, the Managing Director has concerns about the viability of the project and applies strict targets which must be achievable before the project can be accepted. In order to be considered the Managing Director requires a payback period of 4 years, a target accounting rate of return (ARR) of 5 per cent and a positive net present value (NPV).

Requirements:

1.  Calculate the undiscounted payback (3 marks)

2. Calculate the Weighted Average Cost of Capital (WACC). (3 marks)

3. Calculate the  Net  Present  Value  (NPV)  of  the  project,  using  the  WACC calculated in (b) above as the discount (6 marks)

4. Calculate the Accounting Rate of Return (ARR) of the (4 marks)

5. Drawing from the information calculated in the sections above, and taking into consideration the requirements set by the Managing Director discuss whether the project should be accepted or (9 marks)

Learning Outcomes

Question 2

a. The owner of Xstore is contemplating the way that the business is At present the business is run as a Sole Trader. However, Xstore’s owner is determined to expand the business and is frustrated by her inability to access sufficient capital in order to fund this expansion. In order to raise additional funds, but still retaining control of the business, the owner is exploring alternative business structures.

Discuss two types of business structures that the owner of Xstore may wish to consider, exploring the advantages and disadvantages of each, in the context of the situation described in the question above. [12 marks]

b. Discuss the reasons for the importance of working capital management to a business and consider why firms might adopt an aggressive working capital [13 marks]

Question 3

 MediaTech UK plc is a large company in the entertainment sector with retail stores in four countries selling DVDs, music and games. Income Statements for MediaTech plc for the years ending December 31 2016 and 2015 are as follows:

	2016 £m	2015 £m
Revenue	2,017	1,957
Cost of sales	(1,856)	(1,804)
Gross profit	161	153
Administrative expense	(86)	(84)
Operating profit	75	69
Finance cost	(6)	(8)
Profit before taxation	69	61
Taxation	(20)	(17)
Retained profit	49	44

The Balance Sheets for Media Tech plc as at December 31 2016 and 2015 are as follows:

Assets	2016 £m	2015 £m
Non-current assets
Property, plant & equipment	188	162
Intangible assets	122	73
Other assets	56	42
	366	277
Current assets
Inventories	248	214
Trade & other receivables	80	72
Cash and short-term deposits	32	54
	360	340
Total assets	726	617
Liabilities
Non-current liabilities
Retirement benefit and other liabilities	39	21
Interest bearing loans	12	5
Other liabilities	3	-
	54	26

Current liabilities
Trade & other payables	442	416
Income tax payable	21	17
Interest-bearing loans	84	53
Provisions	4	5
	551	491
Total liabilities	605	517
Equity
Share capital	347	347
Reserves	13	12
Retained earnings	(239)	(259)
Total equity	121	100
	726	617

You are also given the following information:

1. The Statement of Changes in Equity discloses that the company paid a dividend of £29m in financial year 2016 and £27m in financial year 2015.

2. The company had6m shares on issue at the end of the financial years 2016 and 2015.

3. In April 2016 the share price was £0.79. In April 2015, the share price was £1.50.

Required:

1. Calculate the following twelve ratios for both years:

a. Return on Capital Employed (ROCE)

b. Return on shareholders’ investment (ROI)

c. Gross margin

d. Operating profit margin

e. Acid-test ratio

f. Asset turnover ratio

g. Inventory days

h.Days payables outstanding

i. Days receivables outstanding

j. Dividend yield

k. Dividend payout ratio

l. Price/Earnings ratio [12 marks]

2. Using the ratios calculated in (i) above, and any other information given in the question, provide an analysis of the financial health of the company from the perspective of:

a. The management of the company [7 marks]

b. The shareholders [6 marks]

Question 4

a. ‘Budgets are said to assist managers in planning, monitoring and controlling ’ Critically evaluate this statement. [13 marks]

b. ‘The recording and preparation of accounting information is underpinned by certain accounting concepts’. Discuss this statement, using examples to demonstrate four fundamental. [12 marks]